5 days ago
- Business
- Business Recorder
Interview with Dr Mufti Irshad Ahmad Aijaz, Chairman, Shariah Advisory Committee
'Pakistan has a legacy of leadership in Islamic finance'
Dr. Mufti Irshad Ahmad Aijaz is the Chairman of the Shariah Advisory Committee at the Securities and Exchange Commission of Pakistan (SECP) and Chairperson of the Shariah Board at BankIslami. He previously served as Chairman of the State Bank of Pakistan's Shariah Advisory Committee for seven years.
He is also a member of the Steering Committee guiding the implementation of the Federal Shariat Court's judgment on Riba and serves on the Governance and Ethics Board of AAOIFI, Bahrain.
Renowned for his expertise in Islamic finance, Dr. Mufti Irshad advises regulatory bodies and financial institutions on Shariah-compliant policy and regulation. He also lectures regularly on Islamic economics and finance at leading institutions including the National Institute of Banking and Finance (SBP) and the Centre for Islamic Economics, Jamia Darul Uloom Karachi.
He holds a PhD in Islamic Studies with a focus on Islamic Finance from the University of Karachi, an MBA from a leading private university, and advanced Islamic qualifications including Shahadat-ul-Alimiyyah and Takhassus fil-Iftaa.
Following are the edited excerpts of a recent conversation BR Research had with him:
BR Research: How do you interpret the constitutional amendment to Article 38(f) that mandates the complete elimination of Riba by January 2028?
Dr. Mufti Irshad Ahmad Aijaz: The constitutional amendment to Article 38(f) reinforces Pakistan's long-standing commitment—rooted in the 1973 Constitution—to eliminate Riba (interest) from its economic and financial system. This amendment, together with the 2022 Federal Shariat Court ruling, provides a binding legal and constitutional framework for transitioning towards a fully Shariah-compliant system. The Court's ruling, which came three decades after the original petition, has finally brought clarity to a debate that persisted for years. It is a commendable move and has been broadly appreciated, signalling the state's alignment with both constitutional imperatives and Islamic jurisprudence.
BRR: What are the immediate regulatory and institutional priorities for Pakistan to meet this constitutional deadline?
IAA: The first and most urgent priority is conducting a thorough gap analysis to understand where the system currently stands versus where it needs to be. This includes assessing institutional readiness, legal frameworks, product offerings, and stakeholder alignment. Equally important is identifying 'champions' within key institutions—such as the State Bank, SECP, judiciary, and financial services sector—who can lead and drive this transformation. While certain institutions like the State Bank and SECP have begun this process internally, broader inter-ministerial and governmental engagement remains lacking. Without a fully integrated strategy supported by enabling laws and clear regulatory pathways, meaningful progress will be slow and fragmented.
BRR: Do you believe the banking sector is aligned—technically and ideologically—with this transition? What is more needed?
IAA: Ideologically, there is growing consensus within the banking sector in favour of this transition. The Shariat Court's decision and the global evolution of Islamic finance have significantly reduced opposition to the idea of eliminating interest. Most banks, including those previously skeptical, now accept the theoretical and moral basis for a Riba-free system. However, the technical and operational alignment still lags. Pakistan lacks the comprehensive legal infrastructure, standardization, and global partnerships necessary for seamless implementation. Many professionals in the sector are concerned about how to practically run operations without conventional tools. Thus, the focus must now shift to creating enabling environments—legal, institutional, and financial—that allow this consensus to materialize in practice.
BRR: What role is the State Bank of Pakistan playing in operationalizing this shift to a Riba-free financial system?
IAA: The State Bank of Pakistan (SBP) is playing a central and proactive role. After the 2022 ruling by the Federal Shariat Court, the Government of Pakistan established a Steering Committee chaired by the finance minister and convened by the Governor of SBP. This high-level committee formed six working groups, each focusing on a critical area such as legal reform, regulatory supervision, public awareness, implementation roadmaps, fast-track changes, and institutional conversion. These groups brought together stakeholders from across the banking sector, academia, legal profession, and Shariah boards. Over 150 meetings have already taken place, and more than 500 man-hours have been spent drafting technical recommendations. The SBP has also issued updated regulatory guidelines, governance frameworks, and operational rules to support Islamic banking institutions. This signals a serious institutional commitment to the transition.
BRR: Canyou elaborate on the work of the SECP and the Shariah Advisory Committees in facilitating this transition across the capital markets and financial services?
IAA: The Securities and Exchange Commission of Pakistan (SECP) is playing a parallel role in transforming the non-banking financial sector. It has constituted its own Shariah Advisory Committee and established dedicated departments to ensure Shariah compliance in capital markets and insurance. These bodies are working on developing products such as Islamic mutual funds, sukuk structures, and Takaful models that align with Islamic principles. However, their authority is still bound by current laws, and there is a recognized need for further legislative support. Both SECP and SBP have the expertise and intent, but to go beyond procedural compliance and achieve full-scale transformation, they require more robust legal empowerment and high-level government backing.
BRR: Are there any specific models or international benchmarks—like Malaysia or Bahrain—that Pakistan can draw lessons from?
IAA: While no major country has fully transitioned to a 100% Shariah-compliant financial system, several have made significant strides. Malaysia and Indonesia have developed world-leading Islamic banking ecosystems with strong regulatory backing, educational infrastructure, and liquidity management instruments. Gulf countries like the UAE and Saudi Arabia have integrated Islamic finance within conventional systems, offering dual windows and supporting innovation. Interestingly, even non-Muslim countries such as the UK, Singapore, Germany, and France have legislated space for Islamic finance based on demand and financial inclusivity. These countries demonstrate that Islamic finance is not only religiously viable but also economically competitive. For Pakistan, these models offer valuable lessons in terms of legislation, central bank tools, education, taxation, and dispute resolution mechanisms.
BRR: What are the biggest structural and operational challenges in eliminating Riba from Pakistan's economy?
IAA: There are several. Structurally, the absence of a unified legal framework and the lack of coordination between ministries, regulators, and the judiciary are major bottlenecks. Operationally, liquidity management remains a challenge, particularly in the absence of Shariah-compliant monetary policy tools. Taxation policies are not yet aligned with Islamic contracts, and the arbitration infrastructure is underdeveloped. Moreover, as Islamic banking grows—currently making up around 22–23% of the banking sector—so do legal risks and compliance challenges. Larger size leads to more litigation, which requires mature legal defences and regulatory protections. Without systemic reform, these gaps could undermine the momentum toward full Riba elimination.
BRR: How do you see Pakistan positioning itself within the global Islamic finance ecosystem by 2028? Can it become a leader in Islamic finance innovation?
IAA: Pakistan already has a legacy of leadership in Islamic finance. In the late 1970s and early 1980s, Pakistan was among the first to introduce Islamic banking frameworks and Modaraba-based non-banking financial institutions. The 1982 report by the Islamic Ideology Council is still considered a global reference document for the elimination of interest. Scholars from countries like Malaysia have acknowledged that their early models were inspired by studies conducted in Pakistan. However, Pakistan's inability to institutionalize these innovations and political instability have kept it from maintaining that leadership. If Pakistan can address its internal governance challenges and revive regional collaboration through platforms like the OIC—with support from countries like Türkiye and Malaysia—it can reclaim a leadership role in shaping the future of global Islamic finance.
BRR: How do you see the issue of liquidity management evolving under a fully Islamic financial system?
IAA: Liquidity management is indeed a cornerstone of a stable Islamic financial system. The challenge lies in ensuring access to Shariah-compliant instruments that provide the same flexibility and control as conventional tools. Globally, this issue has been addressed through instruments like sukuk, commodity Murabaha, and Islamic repos. In Pakistan, sukuk is available, but reforms are needed to make them more usable—particularly around asset-light structures. We need legal clarity, standardized documentation, and a supportive asset registry. The example of the Roshan Digital Account shows that with government backing, innovation can succeed. Going forward, Pakistan must institutionalize Islamic liquidity tools, establish strategic asset companies, and enact structural reforms to fill the gaps. Without this, monetary operations under a fully Islamic system will remain suboptimal.
